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The U.S. dollar has gained traction in August as investors sought safe havens amid rising risk aversion in the wake of concerns about Covid, the tapering of Federal Reserve stimulus and economic growth. Volatility was notably higher in recent days and traders brace for turbulences if anxiety continues.
Also, market participants are on high alert ahead of the August 26-28 symposium in Jackson Hole, an annual event that has been the setting for important announcements in the past. Traders view it as a potential venue for Federal Reserve Chair Jerome Powell to lay out the timing of the Fed’s expected move to taper its bond purchases. Traders hope for more clarity at the annual conference and want to hear from the central bank on when it will reduce its $120 billion of monthly bond purchases. While many market participants expect a taper by December 2021, the greenback’s rise could gain momentum if we get an exact timeline this week. The opposite could however happen in case Powell refrains from delving into the policy outlook during the symposium. Disappointment could thus lead to a sell-off in the dollar. We could know more on Thursday.
From a technical perspective and after the U.S. dollar has gained ground against other major currencies, both EUR/USD and GBP/USD were approaching crucial support barriers last week. The sell-off eased somewhat at the beginning of this week while the euro and cable seem to start a small rebound.
Both EUR/USD and GBP/USD have been in a downtrend since May 2021.
EUR/USD – 1.16- A make-it or break-it level
After the euro broke below 1.17, traders have shifted their focus to the crucial 1.16-support. If 1.16 breaks significantly, we could see a sharp sell-off with lower targets at 1.14 and 1.10. If 1.16, however holds, we anticipate rebounds towards 1.18 and 1.19. In short-term time frames we now expect the pair to trade between 1.1760 and 1.1640.
After failing to climb back above 1.39, the cable went downhill towards 1.36 and thus entered its medium-term support zone which extends from 1.3650 to 1.34. We expect the pair to trade between 1.3850 and 1.3450 now. We bear in mind that the cable is currently in oversold territory, making rebounds more likely.
The index trended upwards after dipping towards 15600 last week. A break above 15920 could lead to another test of 16000 and maybe even an upward extension towards 16100. A crucial support zone is currently seen at around 15500.
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